Schnitzer Steel Industries Inc. (SCHN) saw its profit slip in the second quarter of fiscal 2013 (ended Feb 28, 2013), hurt by restructuring charges associated with its cost saving measures.
The Ore.-based company posted a profit of $8.6 million or 32 cents per share in the reported quarter, down 10% from $9.6 million or 35 cents a share earned a year ago. Excluding restructuring charges of $2 million (before tax), earnings came in at 36 cents a share. The result surpassed the Zacks Consensus Estimate by 12 cents.
Revenue and margin
Revenues slid 25% year over year to $662 million in the second quarter, trailing the Zacks Consensus Estimate of $723 million. Schnitzer Steel witnessed double-digit year-over-year declines across its Metal Recycling Business (MRB) and Steel Manufacturing Business (SMB) units in the quarter. Ferrous export selling prices strengthened during the quarter.
Gross margin rose to 9.3% in the reported quarter from 7.8% a year ago. Operating income tumbled 37% year over year to roughly $11.4 million.
Segment Highlights
Revenues from the MRB division slipped 26% year over year to $576 million in the quarter. Ferrous sales volumes were 1,103,000 tons, down 18% from the year-ago quarter but up 16% sequentially. Increased demand in the export market contributed to the sequential improvement.
Non-ferrous sales volumes fell 26% from the prior-year quarter to 126 million pounds. However, the results improved 6% sequentially on higher production levels and sales timing.
Sales from the Auto Parts Business (APB) unit remained flat year over year at $78 million. Sales were up 12% sequentially on higher commodity prices and volumes.
Revenues from Schnitzer Steel’s SMB division clipped 16% year over year to $71 million. Finished steel sales volumes fell 15% year over year and 26% sequentially to 96,000 tons. Average net sales prices for finished steel products declined 5% year over year, but were up 1% sequentially.
Financial Position
Schnitzer Steel ended the quarter with cash and cash equivalents of $34.5 million, down roughly 33% year over year. Long-term debt declined 3% year over year to $400.7 million.
Restructuring Program
Schnitzer Steel, in Aug 2012, announced some restructuring initiatives, including a reduction of about 7% of its workforce. The restructuring program also involves integration of the metals recycling and auto parts businesses. Schnitzer Steel expects total restructuring expenses of roughly $13 million and anticipates pre-tax cost saving of $25 million from the move.
Schnitzer Steel has already incurred restructuring charges of $8 million with the balance (of $5 million) expected to be incurred during the remainder of fiscal 2013. The restructuring measures delivered an 11% decline in selling, general and administrative costs during the first half.
Outlook
Schnitzer Steel’s APB division added 10 new retail stores during the second quarter through acquisitions and organic investments. These new sites are expected to offer access to additional supply in its core markets. On the MRB front, Schnitzer Steel has completed testing of a new shredder, which will boost processing capabilities in Western Canada during the third quarter.
Schnitzer Steel remains focused on increasing value through expansion of its metals recycling export platform and auto parts business, optimizing costs and boost performance through sustained operational improvement initiatives.
Schnitzer Steel retains a Zacks Rank #3 (Hold).
Other steel producing companies worth considering are Gibraltar Industries, Inc. (ROCK), Nippon Steel & Sumitomo Metal Corporation (NSSMY) and Shiloh Industries Inc. (SHLO). All of them hold a Zacks Rank #1 (Strong Buy).
NIPPON STEEL CP (NSSMY): Get Free Report
GIBRALTAR INDUS (ROCK): Free Stock Analysis Report
SCHNITZER STEEL (SCHN): Free Stock Analysis Report
SHILOH INDS INC (SHLO): Get Free Report
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